Slow­ing econ­omy to put pres­sure on de­mand: Siam

Fre­quent pol­icy changes, rise in com­mod­ity prices also con­cerns for auto in­dus­try growth, says lobby group

Mint Asia ST - - News - BAY MRIT R AJ

De­mand for au­to­mo­biles could slow in the sec­ond half of the fis­cal year thanks to a slow­ing econ­omy and ris­ing fuel prices, ac­cord­ing to the So­ci­ety of In­dian Au­to­mo­bile Man­u­fac­tur­ers (Siam).

In a pre­sen­ta­tion dur­ing a press con­fer­ence, the in­dus­try lobby group said ris­ing fuel prices are ex­pected to in­crease au­to­mo­bile own­er­ship costs by 3-5%. Slow­down in eco­nomic growth, fre­quent pol­icy changes and in­crease in com­mod­ity prices are key con­cerns for growth of the sec­tor, the in­dus­try lobby added.

“The GST (goods and ser­vices tax) tran­si­tion has im­pacted the first quar­ter GDP growth sig­nif­i­cantly. Fur­ther slow re­cov­ery in IIP (in­dex of in­dus­trial pro­duc­tion), post GST im­ple­men­ta­tion, in­di­cates GST tran­si­tional is­sues are still hin­der­ing full re­cov­ery... Abrupt pol­icy changes con­tinue to af­fect long-term sus­tain­able growth of auto in­dus­try,” it said.

Sales of pas­sen­ger ve­hi­cles grew 11.32% to 309,000 units in Septem­ber, the slow­est since July, when sales grew 15.1%. Sales in the com­mer­cial ve­hi­cle seg­ment grew 25% to 77,195 units and sales of two-wheel­ers grew 9% to 2.04 mil­lion units in Septem­ber.

The slow­down in sales come just ahead of the fes­ti­vals Di­wali and Dhanteras, a pe­riod in which In­di­ans pre­fer pur­chases that boost auto sales.

“Oil prices are also ex­pected to re­main higher ($50-55/bar­rel in 2017 from $42/bar­rel in 2016) which would con­trib­ute to the in­creas­ing cost of own­er­ship,” Siam said in the pre­sen­ta­tion.

In­dia’s eco­nomic growth un­ex­pect­edly slowed to 5.7% in the June quar­ter, the slow­est pace in three years, high­light­ing the dis­rup­tion from the rollout of GST in July even as the econ­omy was strug­gling to re­cover from de­mon­e­ti­za­tion in Novem­ber. Con­sump­tion de­mand across In­dia in gen­eral and the auto sec­tor in par­tic­u­lar has been im­pacted by the twin shocks of de­mon­e­ti­za­tion and GST. The GST Coun­cil in Septem­ber raised the cess on mid-sized to large cars and SUVS by 2-7 per­cent­age points, but kept the tax bur­den lower than pre-gst lev­els.

“Over­all, the in­dus­try has im­proved in this quar­ter over last year,” Ab­hay Firo­dia, pres­i­dent, Siam, said at a press con­fer­ence.

“De­mon­e­ti­za­tion im­pacted fi­nanc­ing, which cost us two months in sales. Im­pact of GST rollout was more out of un­cer­tainty than in terms of costs... now the in­dus­try is on a mend­ing path,” he added.

While last year’s cen­tral pay com­mis­sion pay­outs helped in­dus­try growth, this year, state-level pay hikes (around eight states have im­ple­mented pay re­vi­sions) are help­ing de­mand, Siam said in its pre­sen­ta­tion.

“The pos­i­tive ef­fects of the same is ex­pected to last by the end of the year,” it said, adding that near nor­mal mon­soon, lower bor­row­ing costs and softer in­fla­tion will con­tinue to sup­port con­sump­tion growth.

A large part of the au­to­mo­bile growth this fis­cal year would be on ac­count of the low base of last year since the sec­ond half of 2016-17 was im­pacted by de­mon­e­ti­za­tion, Siam said.

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